Europe Under Pressure

Bad as the American economy is doing, the picture in Europe is really a good deal bleaker as this Rebecca Wilder chart indicates:
Germany is having more of a classic rebound recovery than we are (and their kurzarbeit plan worked pretty well to help people weather the storm), but it’s from a much sharper downturn. And much of the rest of the EU is looking disastrous. When the single currency area was formed, skeptics warned that it would prove unworkable amidst this kind of crisis to yoke very dissimilar economies together into one monetary system. And as Ryan Avent observes there’s little indication that the main Euro-area governments wants to take the steps that would be necessary to make the system work:
Something clearly has to give. Policy changes are pushing Europe toward a very long period of stagnation if not an outright return to recession. Workers are underemployed and furious. Core and periphery have seriously diverging views on the direction policy should take. And markets continue to pressure indebted nations to make cuts they may not actually be able to make.Either the ECB must seriously soften its stance, or Germany and France must suddenly become much more generous to struggling euro zone economies, or the euro zone will face its toughest months yet. If no exit valve for the building pressure can be found, then pressured economies will begin heading for the exits.
It’s worth recalling that America’s recovery turn a turn for the worse starting with a period of concern around Greece and the Euro. We finally got a single decent month of jobs numbers, but people shouldn’t forget that there are still tons of problems lurking in the global economy.

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London (AFP) - German and French stock markets rebounded strongly Wednesday after upbeat comments from ECB head Mario Draghi but the euro hit new multi-year lows on expectations of a US rate hike. Frankfurt's DAX 30 index hit a new record-high at 11,718.41 points before easing slightly to 11,702.69, a gain of 1.76 percent from Tuesday's close.

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As we discussed two weeks ago, it would appear Germany's lack of willingness to throw itself on the pyre of self-sacrifice and not adopt a global Fairness Doctrine - as engendered by the US Treasury's (and IMF's) bashing of the core European nation's for maintaining its export strength and daring to keep Europe in tact and thus a periphery-damaging strong Euro - is gathering steam.

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IN A recent post, Simon Wren-Lewis assigned blame in the euro crisis in a provocative way: it's the core's fault! He clearly wants to provide a counterweight to the opposite story ("It's the periphery's fault!"). However, he goes a little too far.Mr Wren-Lewis correctly points out that the core countries of Europe, when setting up the euro, did not take proper account of the macroeconomics of a currency union, focusing instead on an inadequate limit on public debt.

By Peter Boone and Simon Johnson
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LOTS of people around the internet have lots of things to say about the latest twists and turns in Europe. I've been letting events percolate over the last few days and trying to take a broader view. You should all know, by the way, that the print edition's coverage of the ongoing crisis has been excellent and very thorough (see especially this, and this).